Natural disasters reveal infrastructure vulnerabilities

Event

Natural disasters that hit Japan in September have crippled a major international airport serving Osaka, the country's second-largest city, and paralysed power supply in Hokkaido, the largest prefecture of Japan.

Analysis

Typhoon Jebi, the strongest typhoon to hit mainland Japan in 25 years, has wreaked havoc around Osaka prefecture in the Kansai region, in the centre of the country. The tropical storm has disabled a large proportion of the region's transport infrastructure, including Kansai International Airport in Osaka Bay. It was cut off from the mainland owing to flooding and a damaged bridge, leaving thousands of passengers stranded in the airport without electricity or food. A powerful earthquake also hit the northern island of Hokkaido, causing an island-wide blackout after local thermal power stations came to a halt. Power supply disruptions are expected to persist at least for a week, which will curtail almost all tourism activity, a key driver of the local economy.

Beyond the immediate impact, we expect the disasters to result in reduced visitor arrivals and tourist spending in the coming months. In addition, this month's typhoon and earthquake combination is another reminder of how Japan is vulnerable to natural disasters despite the country's rigorous disaster-management efforts. The effects of the 2011 earthquake and tsunami, which halted nuclear energy production, continue to be felt even now, with many reactors remaining out of service. The latest disasters will put further pressure on the government to upgrade infrastructure standards, which will ensure that this remains a key component of fiscal policy in terms of expenditure.

Impact on the forecast

The latest development supports our view that real GDP growth will moderate to 1.3% in 2018, from 1.7% in 2017, as the occurrence of natural disasters has already been factored into our forecasts.